Call Us Today 810-355-4851 or 888-351-8395
Menu / Navigate
Secondary Nav

Understanding the 'self-employment tax'

From Uber drivers to graphic designers, more and more people earn at least some of their income as independent contractors or freelancers, making them self-employed in the eyes of the IRS. If you earn more than $400 a year from self-employment, you'll need to file a federal tax return on that income.

For those new to the self-employment game, the tax implications can seem daunting, but they don't need to be. The main thing to understand is what the IRS means by "self-employment tax."

The 15.3% self-employment tax rate includes two components: 

  • 12.4% Social Security tax on income up to $118,500 (this cap often changes from year to year)
  • 2.9% Medicare tax on all income

If you've worked for an employer, you've probably seen Social Security and Medicare taxes withheld on your paycheck - a total of 7.65% of your income. What you usually don't see on these paychecks is the other 7.65% your employer pays for you.

Put another way, employers and employees split the Social Security and Medicare taxes on income earned by employees. But when you're self-employed, you take on the roles of both employer and employee and pay the full 15.3% tax rate on your income.

The IRS may call it the "self-employment tax," but it's really the same Social Security and Medicare tax other wage earners are also paying.

If you're worried about shouldering the extra tax burden from self-employment earnings, remember that it's not all doom and gloom: there are plenty of potential tax benefits to self-employment as well. An experienced accountant or tax attorney can help you understand your options and minimize your tax liability.

No Comments

Leave a comment
Comment Information

Contact the Firm

Bold labels are required.

Contact Information

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.


Privacy Policy

Law Offices of Angelique M. Neal, PLC
720 W. Grand River Avenue
Brighton, MI 48116

Toll Free: 888-351-8395
Phone: 810-355-4851
Fax: 810-225-4146
Brighton Law Office Map

Pay Your Invoice with LawPay